One sector that benefitted enormously from the Fed’s money printing and low interest rates was retail sales.
From its March 2020 low to its November 2021 high, the SPDR S&P Retail ETF (XRT) rallied an astonishing 300%.
However, as the era of cheap money begun to wind down, XRT’s stock price came under pressure.
Since peaking in November 2021, XRT has fallen 45% – its lowest level since November 2020.
But recently, XRT has been showing signs that this selling pressure is waning.
So today, I’m going to see what’s coming next, plus check out some potential trades.
Let’s look at XRT’s chart…
SPDR S&P Retail ETF (XRT)
Source: eSignal
After hitting its all-time high in November 2021, XRT rolled over when the Relative Strength Index (RSI) inverted from overbought territory (upper grey dashed line).
As the RSI then broke down through support (green line) and into the lower half of its range, XRT’s emerging downtrend gathered momentum.
This downtrend was confirmed with the 10-day moving average (MA – red line) breaking down below the long-term 50-day MA (blue line).
Since then, the long-term trend has remained down.
When we checked XRT back on May 12 (red arrow), we saw how it had tried to rally in March but ran out of momentum.
Then, XRT’s downtrend again took hold as the RSI broke lower below resistance… and the 10-day MA began to accelerate below the 50-day MA.
However, in May we saw emerging signs that XRT’s downtrend was losing traction, after the RSI formed a ‘V’ from oversold territory (lower grey dashed line).
Since then, buying momentum has been increasing.
Take another look at the chart…
SPDR S&P Retail ETF (XRT)
Source: eSignal
This is what’s enabled XRT to build short-term support (orange line) for the last couple of months.
What’s more, there are now two promising signs that could potentially see XRT rally.
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The XRT stock price could soon break above its 50-day MA.
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The RSI is building momentum and could soon break back into the upper half of its band.
So, what am I looking for from here?
Well, ever since the RSI broke below support in November 2021, it’s remained predominantly in the lower half of its band.
The exception was when XRT briefly rallied back in March before the RSI again turned lower.
As long as the RSI remains in this lower range, then any rally in XRT will be short-lived.
So, for XRT to rally – and provide a potential setup for a long trade – it must first break through resistance and stay there.
Then, for any long-term trend to emerge, the 10-day MA needs to break back above the 50-day MA and accelerate higher.
However, action around the RSI’s resistance is key.
If the RSI again fails to break resistance and instead rebounds lower, then any potential rally will quickly disappear.
And this will put further pressure on XRT’s short-term support.
Meaning, if the RSI remains stuck in the lower half of its range, then XRT’s short-term support will ultimately fail.
A break below that would be the start of yet another leg down.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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